Operating ratio too to come in at a better-than-expected under 90%

Rail Budget 2016: While Suresh Prabhu’s ambitious capex plans hinge on enhanced market borrowings and the five-year credit line of Rs 1.5 lakh crore from Life Insurance Corporation, has also embarked on a plan to cut working expenses and produce larger internal surpluses. (Express Photo)

While a rather weak economy upset his revenue calculations and many predicted the Indian Railways to wipe out even its meagre surplus, railway minister Suresh Prabhu is likely to keep the transporter’s operating ratio (OR) for this fiscal at a better-than-expected level of below 90% and report a close to 50% jump in its capex (Plan outlay) as he presents the Rail Budget on Thursday.

Significant savings on ordinary working expenditure achieved mainly by way of low fuel costs and revenue acceleration in the last few weeks of the fiscal from brisk freight loading would help the minister present budget figures more sanguine than many analysts have estimated, sources familiar with the matter told FE.

“Savings of some Rs 5,000-6,000 crore are likely on the energy bill (of Rs 30,000 crore). The total expenditure would therefore be around Rs 1.57 lakh crore as against the budgeted Rs 1.63 lakh crore. Despite the sharply lower-than-budgeted growth until January-end in both freight and passenger receipts, the shortfall in the railways’ gross traffic receipts won’t be more than Rs 10,000 crore. And then there are some gains likely from concessions funded by the Union Budget,” a source said.

The last Rail Budget had projected the OR to improve to 88.5% in FY16 from 91.8% in FY15 and had set ambitious target to raise capex (including public-private partnership ventures) by 52% to over Rs 1 lakh crore, pinning hopes on a larger-than-usual reliance on extra-budget resources. Though the capex momentum remained far below the budgeted pace for most of the year, it has lately picked up: Capital expenditure until December end was Rs 58,000 crore, up 45% over the same period in the previous year. PTI has reported that the Plan outlay for FY17 could be Rs 1.25 lakh crore.

But budgeting for FY17 could prove an uphill task for Prabhu. The 7th Pay Commission had put an additional burden of Rs 28,500 crore (as per the railways’ internal estimate, including arrears, its total payment obligation from the award could be around Rs 40,000 crore) and given nominal GDP growth of around 8.6% projected for next fiscal, revenue buoyancy is likely to be subdued too.

While the finance ministry had refused to foot the pay commission bill for the railways, it is also unlikely that its gross budget support — which was reduced from Rs 40,000 budgeted to Rs 32,000 crore for the current year — would see a jump in FY17.

While Prabhu’s ambitious capex plans hinge on enhanced market borrowings and the five-year credit line of Rs 1.5 lakh crore from Life Insurance Corporation, has also embarked on a plan to cut working expenses and produce larger internal surpluses. Thanks to electricity procurement via competitive bidding, a 20% reduction in the electricity bill — an annual Rs 12,000 now — is expected.

Total working expenses in FY17 would be reduced by 15% from a business-as-usual scenario by trimming staff (13.7 lakh currently) and a 10% reduction in diesel consumption. The minister is also targeting to double parcel lease revenue to Rs 4,000 crore and advertisement revenue of Rs 2,000 crore in FY17.

The skewed nature of the railways’ revenue matrix is evident from the fact that its losses from passenger services due to subsidisation of fares is around Rs 32,000 crore and “national public service obligations” cost it close to Rs 30,000 crore annually.

The transporter, which is losing traffic to trucks and airways, has limited ability to raise freight rates. It is already facing resistance from transporters of bulk commodities — coal, foodgrains, cement, iron ore, etc — against the plan to hike freight, while inflationary impact of higher freight is also a cause for concern.

Oil can be imported directly by the Railways. Solar panels can be installed. on top of the coaches. The railways can set up solar power generatin . plants on its vast tracks of land and it can be connected with the national power grid.